HSBC set a new record low rate today but a top mortgage adviser doesn’t expect more rate drops to follow.

by Mathew E. May

“If I had the key members of your executive suite all in the same room, would they all be able to articulate the essence of your current strategy clearly and consistently?” I asked the executive vice president of strategy.

“Probably not,” she replied. “But I do know we need a new one, because the current one isn’t working.”

I hear this quite a lot. The reason I ask the question is simple: the starting point for strategy is defining the problem with the current strategy, and you can’t do that without being completely clear on the current strategy.

In my previous post, I made a case for not starting strategy development with S.W.O.T. (Strengths, Weaknesses, Opportunities, Threats), and promised a better starting point. This is it. There are actually a few steps to take before you ever craft a new strategy.

Step 1. Get clear on the current strategy
You know you’re clear on strategy when you can answer the five key questions in the Playing-to-Win cascade with an as-is perspective:

What is our current winning aspiration? You have clarity and consensus on what it means to win with customers, and against competitors.

Where do we currently play? You have clarity and consensus on: who your key customers are; the channels through which you serve those customers; our most winning products or services; all the geographic regions in which you offer those products/services; the stages of production or phases of the overall value stream in which you compete; and where along the value stream do you participate, relative to competitors.

How do we win? You have clarity and consensus on: your unique competitive advantage; why exactly customers choose you over the competition; whether your basic competitive advantage low cost or differentiation (it cannot be both); and how your competitive advantage is linked to where you play.

What critical capabilities do we need? You understand clearly which key activities and skills must be performed at the highest level to produce your competitive advantage, as well as which capabilities are most relevant to customers.

What management systems must we have? You understand clearly the systems, processes, standards and metrics that give rise to and support your critical capabilities.

Once you’re clear on your current strategy, then (and only then) you can talk about the most troubling areas of that strategy, and begin to contemplate a new one.

2. Identify the strategic issue
The second step is settling on the most pressing and troublesome strategic problem you’re facing. Has your leadership position slipped? Is market share shrinking? Have competitors surpassed you with better products or services? Is growth not happening as fast as you’d like? Are your capabilities becoming irrelevant with end users?

If you’re like most of us, our current strategy is rather target-rich…meaning you have more than one pressing issue. Pick the one that’s keeping most everyone up at night. That’s your bogey.

3. Reframe the issue
Here’s where Playing-to-Win strategic choicemaking departs from traditional problem solving. You’ll be tempted to begin analyzing the problem. You’ll be tempted to slide back into the familiar S.W.O.T.

Don’t.

Instead, reframe the problem as at least two opposing (and thus mutually exclusive) models or high-level approaches to the problem. Imagine a future in which the strategic issue doesn’t exist. In a couple of words, what did you do?

For example, if your problem is inferior capabilities versus your competitors, the choices could be between building new capability and outsourcing. (At the most generic level, the choice is always going to be between more of something and less of something.) Here are some examples:

Go broad vs. go narrow

Move up market vs. move down market

Build vs. buy

Generalize vs. specialize

Centralize vs. decentralize

Grow revenue vs. boost profit

Agility vs. Stability

Customize vs. Standardize

What you’re trying to do with this “framestorming” step is to lay the groundwork for some nonlinear, creative thinking. One of the key precepts in the Playing-to-Win framework is that strategy is a blend of creative and critical thinking modes. The constraint imposed by considering two opposing pathways produces a creative tension that demands resolution, and forces you to expand your thinking.

3. Brainstorm possibilities; cluster and cull
You’re still not ready to dive into the new strategy work just yet, basically because you have nothing to dive in to. What you want to dive into is possible where to play/how to win combinations that you riff off of each pathway of your reframing work. In other words, you’re looking for a good double fistful of “how-to’s” for the two opposing choices…possible ways to solve the problem within the framework of one of the opposing options.

This is where a solid 30 minutes or so of brainstorming will work wonders. When I work with groups, I like to split that 30 into 15 minutes of individual brainstorming and 15 minutes of group brainstorming. The first 15 makes the second 15 very productive.

The approach to brainstorming possibilities I like best is to think of a happy story about a potential future that lays out where your company plays and how it will win there. Start by thinking up different ways to either broaden or narrow where you play. Think through the various spaces in the categories of customer segments, channels, product/service offerings, geography, stage of production, etc.

Then you can think about various ways of winning. One creative device might be to play the “what would X do?” with respect to what Michael Porter in his seminal book Competitive Strategy identified as the only two broad categories of competitive advantage: low cost or differentiation. So, “what would Amazon do?” (low cost) or “What would Apple do?” (differentiation) in these spaces.

Note: you’re still not into drafting a strategic choice cascade yet! You’re just brainstorming. And as with any brainstorm, you’ve got to synthesize your ideas into something both meaningful and relevant to the problem. The best way to do that is to simply cluster the where to play/how to win possibilities by general theme. You might have three basic themes: broaden, maintain, narrow. (Note: Obviously, you haven’t scrapped your current strategy, and it remains the only viable strategy at the moment.)

The last thing you want to do is to cull those thematic possibilities into the few that you will then draft a full strategic cascade for. I recommend three to five possibilities, including the current strategy.

Let’s see how this 4-step start plays out with a hypothetical example.

Example: Star fitness training
Joe and Mary Buff, former Crossfit winners, offer in-home personal training services to an upscale clientele in the Hollywood, California area. Their clientele, which includes some celebrities, pay a premium over even the highest-priced health clubs for their personal attention. They are very successful with this strategy, but have reached the limits of scale in their business and cannot take on new clients. They view it as a good problem to have, but a problem nonetheless.

They define the problem in three words: ceiling on growth. They reframe their problem as two opposing pathways:

expand into new client segments vs. offer new products to existing clientele

These are two completely different and opposing choices. The Buffs would not, should not, could not pursue both simultaneoulsy, so they are mutually exclusive. Each has a number of possibilities:

expand to cover all of Southern California by franchising Star Fitness Training

expand to cover all of Southern California by franchising Star Fitness Training

extend into high-end health clubs

expand through boutique storefront studios

B. Diversify clientele:

expand to downscale clientele with trainer certification model

C. Fitness products:

offer online training programs

offer a mobile fitness app

offer cloud-based fitness and training platform

offer private-label nutritional products

offer private-label exercise equipment

They select three possibilities they believe are worth exploring, and scrap the rest: (1) expand to all of Southern California through franchising, (2) expand into less affluent client segment by hiring, training, and certifying new training associates, and (3) offering a cloud-based fitness and training platform.

They pull out three wall size versions of the Playing-to-Win Strategy Canvas, and develop each possibility into a full cascade of choices. They then reverse engineer each set of choices — which are in reality simply a set of hypotheses about the future — to determine the critical risks, by asking “what must be true for this strategy to succeed?”

Finally, they pick the strategy that the group believes is most compelling and construct a strategic test to learn whether what they believe must be true is actually true.

And that is how the best strategists start strategy.

Conclusion
Note the difference between this approach and S.W.O.T. Also note that the starting point for strategy is definitely not, and should never be, tied to the calendar, unless for some uncanny reason your strategic issues magically appear at the beginning of the year. In over 20 years of doing this, I’ve never seen that happen once. Nor do I know of anyone who has.